Beyond the Overall Economic Downturn: Evidence on Sector-specific Effects of Violent Conflict From Indonesia

Abstract

This paper analyzes the impact of violent conflict on economic activity using micro level data sources from Indonesia. the study compiled a panel dataset at the kabupaten level for the period 2002-2008, and attempted to disentangle the overall negative effect of violent conflict on economic growth into its sectoral components. we find substantial differences across sectors, with the most detrimental impact evident in manufacturing industries and the service sector. furthermore, the short-run impacts on growth appear to be only temporal and some evidence of the "phoenix effect" in the ready post-conflict period is found. the construction sector, in particular, recovers quickly once the conflict ends, while manufacturing industries and the finance sector appear especially reliant on a lasting peace. the results therefore reveal the substantial effects of violent conflict on the structure of the economy and hence its longer-term growth trajectory. a series of alternative specifications confirm the main findings of the analysis. keywords: violent conflict, economic growth, Indonesia jel codes: 011, f5